Question

Based on the boating example discussed in class, at what point in time do we record a liability related to the life jackets in our financial statements? Select one:

a. At the contingent event, which in our class example of the boating company and life jackets was the day the inventory was recorded.

b. At the obligating event, which in our class example of the boating company and life jackets was the day the order is placed.

c. At the sales event, which in our class example of the boating company and life jackets was the day the boating company paid its supplier.

d. At the obligating event, which in our class example of the boating company and life jackets was the day the order of life jackets is received by the boating company.

Answer 1

The correct answer will obviously be D -

Liability can only be recorded when the bill from supplier will be recived and the bill will be recieved on the reciept of goods.

so in the given case liability will be recorded when life jackets will be recieved by the boating company.

A

it is the discretion and policy of the company as when they record the inventory, this we can not match with the recording of liability.

B

When we place the order we dont record the liability because order can be cancelled / modified and accordingly amount of order can be changed.

C

amount will be paid after liability is recorded.

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